The ruling was issued in a case where the City of Phoenix agreed to rebate half of its future sales tax revenues from the “CityNorth” retail project, up to $97.4 million, in exchange for the developer building parking spaces and dedicating part of those parking spaces exclusively to drivers participating in commuting programs. The decision hinged on the presumption that the value of the dedicated parking spaces did not come close in value to the $97.4 million in tax benefits. (Note that, had a present value calculation been performed for the $97.4 million in payments over 45 years, it is not clear that the trade off in value would have been unequal, especially given the uncertainty of the timing and amounts of those payments.)

The ruling arguably prohibits any Arizona governmental entity from giving tax breaks to a private enterprise in exchange for locating a new business enterprise, or expanding an existing facility, in Arizona, unless the government entity receives direct consideration of roughly equal or greater value. New tax revenues expected to be generated from the expanded economic activity do not qualify as direct consideration to the government under the court’s ruling.

Arizona is struggling to attract new businesses and jobs to the state. We will have to be all the more creative and thoughtful if we are to be successful without the ability to offer the incentives being liberally offered by other states.

1) High Tensions. Have you ever heard of the Arizona Power Plant and Transmission Line Siting Committee? It is a committee the legislature created pursuant to A.R.S. Section 40-360 to determine where new high voltage, high tension overhead power lines and power plants will be installed. More than one landowner has been brought to tears after learning that a power line was going to be erected over the middle of their property.

2) Where Will The Road Go? Future roadway locations are constantly realigned, which can significantly impact the value of your property. The value of your property increases if the realignment brings the road to your property, providing greater access. The value decreases if the road is moved away from your property, depriving you of access. In addition, your property’s value could also decrease if the road is moved to bisect your property, and neither of the two remaining parcels is large enough for your commercial development. For the latter, you may be compensated for the governmental taking, including the value of the property taken and for the reduced value of your remaining property, but it will likely not approximate the profits you would have received from a successful development.

3) Roads That Are Never Created. Even worse than a poor realignment of a road is when the government slates a new road to go through the middle of your property but then never funds the road. This scenario could leave you unable to use or sell the property.

4) General Plans Changes And Downzonings. The saying goes, “no citizen’s wallet is safe while the legislature is in session.” It might also be said that “no property owner is safe while the city council is in session.” Most people think that once their property is zoned, it cannot be rezoned by the city without compensation to the landowner. This is not true. A city can rezone your property at any time prior to commencement of construction. The City of Mesa recently changed its general plan and then proceeded to rezone a number of parcels to take away their multifamily zoning designations, all without compensating the property owners for the reduction in values of their properties.

5) Improper Infrastructure. Plan for proper infrastructure before it is too late. One unprepared property owner faced the possibility of being unable to obtain water or sewer lines to his property upon construction of a freeway near his property which left it landlocked between a mountain and the freeway. Had he been proactive and installed a water and sewer line under the freeway before it was built, he would be the owner of a very valuable – instead of worthless – piece of property.

6) Annexations. Development and impact fees can vary greatly between municipalities. As a result, whether your property is ultimately annexed into a particular municipality can have a significant impact on the value of the property. Strip annexations can have a similar result. Another example of how annexation can affect your property’s value is that annexation into a city may mean that you can no longer use septic for your development and may potentially be required to bring in more costly sewer service.

7) ID’s and CFD’s. Improvement Districts (ID’s) and Community Facilities Districts (CFD’s) can be a boon for development, or, conversely, could be very costly. ID’s act as a lien against your property to secure bonds issued to finance infrastructure. CFD’s create a special taxing district to repay bonds issued for infrastructure. Be aware of which ID’s and CFD’s are good or bad for your property.

Here’s how to protect your raw land against these and other problems:

• Visit your city or county planning and zoning department once or twice a year to find out what is happening that could affect your property.

• Hire a good broker who specializes in the area of your property and ask him to monitor and advise you of situations which could affect your property. At any given time, the broker will usually know what is negatively or positively impacting your property.

• Consult your attorney quickly when problems are identified, and do not wait until the damage cannot be rectified.

In a nutshell: Be aware. Be proactive. Avoid complacency.

After bottoming out at 4.4% in early-2007, the unemployment rate recently hit 6% and is likely headed higher.

Everywhere in Arizona, the recession is starting to take its toll. By an “Arizona recession,” I mean we are experiencing negative employment growth in our state. Employment in the Phoenix-Mesa MSA is expected to be down about 1% in 2008.

But of course the negative 1% overall employment dip in Arizona severely understates the far more severe drop in employment in the real estate industries, which are the most severely affected sectors of our local economy. Real estate brokers, real estate lenders, title companies, mortgage brokers, architects, engineers, real estate and lending lawyers, contractors and their suppliers, local governments, furniture companies and even homeowners’ associations are all experiencing severe pain. And yes, it is possible that it will get a lot worse for them and others.

Arizona is not alone, of course. One of the nation’s largest law firms, Sonnenschein Nath & Rosenthal, has laid off 124 employees so far this year including 37 lawyers. Cadwalader, Wickersham and Taft, the country’s 64th largest law firm, has axed upwards of 130 attorneys, quickly making it known as “America’s firingest law firm.”

But where is our local economy headed? Will things get much worse? How long will it take before we enter a recovery? A year? Two years? Longer? What does that recovery look like?

Perhaps we can get a feel for the potential depth and breadth of the current recession by comparing it to our last major recession – the one of 1990. While people are beginning to compare the current recession to the depression of 1929, there are so many differences in our economic and political system today versus then, and no one really expects things to get that bad, so a comparison to 1990 is far more interesting and instructive.

Things are bad in Arizona now. But, if you were toiling in business back in 1990, you know that things can still get much worse. Really. Let’s roll back time and think about what Arizona was like in 1990:

Looking at the financial sector, the 1990 recession saw every savings and loan association close in the Valley, and every locally grown bank of any significance sold to out-of-state institutions. Not only did the high-flying Lincoln Savings controlled by Charley Keating go under, but Merabank, Arizona’s largest S&L then controlled by APS, went into receivership. And while Western Savings had grown during the 80’s to the 37th largest S&L in the country with more than $6 billion in assets, Western Savings moved into second place in 1989 for the most losses of any S&L in the country with a $1 billion loss. Pima Savings was at one time a $2.7 billion institution, but it was dissolved by the taxpayers in 1989.

The “Mortgages Ltd.” of its day, the Baptist Foundation, filed bankruptcy in 1991 after losing several hundred million dollars from thousands of retirees’ IRA funds.

Virtually every real estate developer in the Valley went out of business around 1990 with a few notable exceptions such as the Najafi brothers’ Pivotal Group, DMB, Robert Sarver, and Starwood, all of whom used their access to scarce capital to take advantage of the plethora of opportunities created by the recession.

The nimblest of the troubled developers were able to negotiate releases of liability on their personal guaranties of their real estate debt in exchange for giving their lenders deeds-in-lieu-of-foreclosure to their real estate empires. A good number of real estate developers and syndicators sucked all the cash they could out of their projects and then fled to Florida or Texas where those state’s unlimited homestead exemption laws allowed them to reinvest their cash in homes in order to shelter a significant amount of net worth from creditors.

The recession of 1990 was largely a result of excesses in the commercial property and land development sectors. A dramatic example from the 1990 recession was Sun Valley, about 45 miles west of downtown Phoenix. It was planned as a 28,000-acre master-planned community. Fifty of the 95 Sun Valley land owners filed Chapter 11 bankruptcy reorganization petitions in 1990 to protect their land from reverting to Heron International of London. Heron had guaranteed $82 million in bonds that the landowners used to finance the Sun Valley Parkway, a four-lane, 30-mile road that connects with Interstate 10 on the south and sweeps around the White Tank Mountains through what was to be the heart of the planned community. Today, few but cycling enthusiasts use the parkway.

One of the most severely brutalized industries in Arizona in 1990 was the legal community.

In 1989, the Arizona Republic quoted Shirley Murray of the Arizona State Bar’s membership department as saying that, “It’s been an unreal year. Usually we have 10 new firms. This year there are about 100 new law firms due to the dizzying pace of lawyers switching, closing and starting new firms.”

In Nov. 1990, the Phoenix Gazette reported that of the 290 attorneys being admitted to the bar, only 50 had jobs awaiting them as they were being sworn in by the Arizona Supreme Court.

Streich Lang shrank by a third in terms of the number of attorneys. Evans Kitchel & Jenckes, one of the state’s largest firms at the time, and which claimed the accolade of being the state’s oldest firm, closed its doors in 1989 on its 40 attorneys. Winston & Strawn, with 950 attorneys internationally today, closed its Phoenix office in 1989.

The firms that survived then did so largely by representing lenders in bankruptcies and workouts. While many firms were precluded by conflicts, having previously represented troubled borrowers, among the lucky firms that represented the FDIC and RTC were Ridenour Swenson Cleere & Evans, McCabe & Pietsch and Robbins & Green.

So, how does today’s recession differ from 1990?

In one respect, today’s recession is largely driven by the residential mortgage debacle, whereas the recession of 1990 was driven by commercial overbuilding and excess. While there is significant stress in today’s commercial markets due to the retraction of real estate-related firms, we do not enter this recession with the severe commercial vacancy rates of 1990.

As bad as it now is, the current housing crisis can still get worse. At a minimum, we will see a more gradual recovery than in the past. Tightened residential credit standards will forever reduce the pool of potential homebuyers. Some have predicted that the “Alt A” mortgage default “bulge in the python” has yet to flood the market with additional foreclosures, and that this arrival can be expected soon. The glut of homes on the market will continue to put a lid on construction and remain a drag on the economy.

The Valley’s population is still increasing, so we will grow out of this recession as we always do, but it will take some time.

Unemployment can, and likely will, go higher. There will be more commercial and land loans going into default, bankruptcy and foreclosure, as loans come due and cannot be renewed or refinanced due to owners’ inadequate cash flow to service the debt and lower appraised values for the collateral. On the other hand, we will not see the massive wave of foreclosures in the commercial sector that occurred in 1990.

We will see additional bank closures and sales, but most banks will survive this recession, unlike 1990 when most banks disappeared. When the RTC took over all the S&L’s and most banks’ assets in 1990, they foreclosed on all their real estate assets, and then flooded the market with these 3,000 properties for sale at a time when there was little liquidity in the marketplace to absorb the glut of product, resulting in properties selling for 25 cents on the dollar. In 2009/2010, most banks will survive and, if property owners can service the debt on their properties, lenders will have no choice but to work with the borrowers until the market rebounds.

Most of the disruption in the legal community has already occurred, but there will be more. As with the early 90’s, many real estate transactional attorneys will retool into workout artists and bankruptcy experts.

In summary, commercial real estate defaults are still working their way through the foreclosure pipeline and will increase. Commercial bankruptcies will increase before peaking. Law firms will need to keep an eye on their receivables since litigation is on the increase, yet clients are increasingly unable to pay the cost of court battles. Banks will struggle, and some will close or merge, but unlike the 1990 recession, most banks will survive. Most likely, things will not get as bad as 1990, but for those who lived through 1990 and survived, they know that the potential exists for things to still get much worse.

Mark Dioguardi is a partner with the law firm of Dioguardi Flynn LLP. His firm practices in the areas of general business transactions and litigation, including the areas of finance, banking and real estate transactions, as well as commercial real estate workouts, bankruptcies, and litigation. He a founding principal shareholder of West Valley National Bank and its former Chairman of the Board, and currently serves on the board of directors of Friends of Public Radio Arizona. He is a graduate of Stanford University and ASU’s School of Law. Mark can be reached at MDioguardi@DioguardiFlynn.com or 480-970-2430.